Mark Parsons, ATB ECONOMICS | June 6, 2025

Over to you

In this week’s The Seven… 

• Under pressure - Canada’s labour market 
• Resilient (so far) - U.S. jobs
• Not to the rescue - Bank of Canada
• Over to you - First Ministers’ discuss fast tracking projects
• More nerves of steel - tariffs on steel and aluminum double
• Wildfire watch - Oil production temporarily curtailed
• Interesting Fact: The Port of Churchill
• Chart of the Week: Past wildfires and impacts on energy production

“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”

—Bank of Canada Governor Tiff Macklem’s opening statement, Jun 4, 2025

“First Ministers agreed to work together to accelerate major projects in support of building a strong, resilient, and united Canada.”

—First Ministers’ (Prime Minister and Premiers) statement, June 2, 2025

As the trade war continues, we highlight two key events in Canada this week: 

1) The Bank of Canada paused its policy rate again, flagging inflation concerns;

2) The PM and Premiers discussed ways to fast track major projects to strengthen the economy.

Put it together, and this is an “over to you” type moment. The Bank of Canada is almost done cutting rates. Now Canadians look to their elected leaders to solve Canada’s economic challenges: execute on major projects, expand overseas and tear down internal trade barriers.   

The stakes are high. The trade war impacts are now showing in the ‘hard’ economic data. The inventory builds and rush to export ahead of tariffs flattered first quarter economic data. Now we see a big pullback in April exports and another increase in unemployment in May.

We also can’t forget that, even before Trump 2.0, Canada was seeing an erosion in productivity growth, and its close cousin GDP per capita. Canada scores better on other metrics, but one shouldn’t diminish the productivity problem given its link to wages and overall living standards. We’ve argued that more private investment is a key missing ingredient, and needed for both Alberta and Canada to drive the next leg of growth. Accelerating major projects and bringing back private capital would go a long way to offsetting the impacts of the trade war.

Also explored in today’s Seven, wildfires temporarily dent oil production, Trump ramps up steel and aluminum tariffs, and exports and jobs have become casualties in the trade war. 

As I write this in downtown Edmonton, I would be remiss to not highlight the Oilers victory in game one of the Stanley Cup finals—also a winner for local businesses.

Trade headwinds - Unemployment rises again

Canada’s labour market is feeling the pressure from the trade war, with weakness concentrated in manufacturing industries most directly hit by tariffs.

Last month, Canadian employment was essentially unchanged (+8,800), a stronger-than-expected showing. But the unemployment rate edged up from 6.9% in April to 7.0% in May—the highest since 2016 outside the pandemic period. 

The details show that private sector employment bounced back, but is still below its January level. Notably, the tariff-exposed manufacturing sector saw employment fall again by 12,200, with a cumulative decline of more than 54,700 since January. 

Ontario’s economy, the center of steel and auto manufacturing, is under pressure from U.S. tariffs in these sectors. Ontario’s unemployment rate is now third highest among provinces after Newfoundland and PEI at 7.9%—up from 6.8% the same time last year.  Statistics Canada notes that Windsor (10.8%), Oshawa (9.1%) and Toronto (8.8%) have the highest unemployment rates among Canada’s 20 largest CMAs (based on 3-month moving average). The Calgary CMA sits at 7.8% and Edmonton at 7.3%. 

In Alberta, employment held fairly steady (-1,700), but the unemployment rate rose to from 7.1% to 7.4% as more people looked for work.

Keeping up with rapid labour force entry has been a challenge for the Alberta labour market since the population boom started in 2022. Statistics Canada estimates that the population aged 15+ rose 3.9% year-over-year (y/y), outpacing the 2.7% gain in employment. Alberta leads the provinces in y/y employment growth, but momentum has stalled since January after a strong second half of 2024.   

Youth are entering a tougher job market this summer. Canada’s unemployment rate for returning students* (aged 15 to 24) was 20.1%, up from 16.9% in May 2024. In Alberta, the number is even higher at 25.5% (vs. 18.8% in May 2024). As we have discussed, Alberta is attracting a disproportionate number of people from other provinces and internationally in this young age bracket.

*Returning students are those aged 15 to 24 who attended school full time in March and who intend to return to school full time in the fall.

U.S. labour market - Some cracks, but pretty resilient

Today’s jobs report for the U.S. shows some signs of softening. But compared to Canada, it’s holding up fairly well. U.S. employers added 139,000 jobs in May, a solid but cooling pace. The unemployment rate held steady at 4.2%.

Federal Reserve Chair Jerome Powell has noted that the ‘hard data’ has been decent, and this report is unlikely to change his tune. A rate pause at the Fed’s June 18th meeting is expected.

More nerves of steel - Tariffs double

Just when you think you’ve figured it out, there is a twist in the tariff plot. Last week we talked about the trade war entering phase 2 (i.e. toward bilateral deals and away from broad-based tariffs). Our view is that broad-based action by Trump could be constrained by 1) legal challenges and 2) the bond market.

Then this week Trump stepped on the accelerator, doubling tariffs to 50% for steel and aluminum. The new rate went into effect on June 4, 2025.

The higher tariff applies to steel and aluminum imports from virtually all countries, with the notable exception of the United Kingdom, which remains at 25% pending a potential trade deal.

This is another blow to Canada, and in particular the major steel and aluminum producing provinces of Ontario and Quebec. As I write this, there are reports of private talks between Trump and Carney about reaching a deal on tariffs but the result of these discussions is unknown.

Tariff whiplash - Canadian exports plunge in April

Here’s a lesson on the limited utility of backward-looking data. Canada’s GDP growth looked pretty good in the first quarter at 2.2% annualized. Trade war? Nothing to see here. But a closer look reveals it was a rush to get ahead of tariffs—exports spiked and so did inventories.

The second quarter is shaping up to be much worse, as tariffs came into effect. Exports plummeted 10.8% in April to the lowest level since early 2022, led by a 15.7% drop to the U.S. Declines were widespread, led by autos and parts. Imports also fell 3.5%, notably in autos, as Canada retaliated with its own tariffs. Companies are racing to make their goods compliant with the Canada-U.S.-Mexico Agreement (CUSMA) to avoid tariffs. 

In Alberta, while year-to-date export performance is solid and gains have been noted in non-U.S. markets (mainly Trans Mountain pipeline related), there was a pullback in April and we expect to see momentum wane in the coming months.

Downgrade - Growth expectations lower across the globe

A new day brings a new forecast. This one comes from the Organisation for Economic Co-operation and Development (OECD).

This week, the OECD lowered its global growth forecast to 2.9% for both 2025 and 2026. Canada is among the countries hardest hit from the trade war (slowing to only 1% growth), along with Mexico and the tariff-imposing country itself - the U.S.

We’re tracking an even softer 0.8% growth rate for Canada this year, with weakness focused in the regions hit hardest by the targeted tariffs - Ontario and Quebec. Embedded in this annual forecast is the expectation the economy will contract slightly in Q2 and Q3.

BofC not to the rescue

This week the Bank of Canada held its policy interest rate steady at 2.75%, adopting a ‘wait and see’ stance as it seeks more clarity.

It’s unclear what clarity the Bank will receive given the unpredictable nature of the trade war. Our view is that an ‘insurance cut’ was warranted to get in front of the headwinds. By late July we suspect that there will be enough signs of deterioration that the Bank will cut on July 30. The Bank can pair the cut with a new forecast as it releases the quarterly Monetary Policy Report the same day. 

But let’s not overstate the impact of future rate cuts. The Bank has already done the heavy lifting, bringing the policy rate from 5% to 2.75%. It is in its final inning – we see the Bank finishing their rate cutting cycle at 2% by year’s end.

The Bank is saying they can only do so much about the economic slowdown given their inflation control mandate, and the inconvenient fact that tariffs raise prices.

So what can be done outside of monetary policy? Here are a few things: improving investor confidence in Canada, getting major projects built, knocking down internal trade barriers,and signing new trade deals. A nice segue to the next topic.

First Ministers talk fast-tracking major projects

First Ministers’ meetings can sometimes be yawn fests—blanket communiques not really committing to much.

This one, held this week in Saskatoon, was different. There is a new PM with big promises: strongest economy in the G7 and energy super power. Also massive problems to solve - chronically low levels of investment and productivity and rising unemployment. 

The gathering focused on "nation-building" projects and the acceleration of critical infrastructure investments. 

Here were the key outcomes:

• Faster project approvals: Federal commitment to "one project, one review" for environmental assessments and two-year federal decision timelines for national interest projects (e.g., critical minerals, energy, infrastructure).
• Market access: Urgency in getting Canadian resources to global markets, especially Asia.
• Trade with China: Federal commitment to remove Chinese tariffs on Canadian agriculture and seafood.
• Internal trade: Directive to quickly implement a comprehensive Mutual Recognition Agreement for consumer goods and pan-Canadian credential recognition 30 day standard. Mutual recognition holds a lot of promise, as I’ve previously discussed; 
• Public safety: Joint efforts for bail/sentencing reforms, law enforcement support, and addressing the toxic drug supply.
• Wildfire response: Continued support for affected communities.
• Indigenous partnership: A pledge to strengthen Indigenous ownership and partnerships in economic opportunities.

Interesting Fact: Port of Churchill

The Port of Churchill in Manitoba is Canada's only deep-water Arctic seaport directly connected to the North American railway network via the Hudson Bay Railway (HBR). This makes it a crucial link for northern communities and Arctic sovereignty

The port is getting more attention these days, as the country seeks to quickly diversify into new markets.  Pursing economic corridors to the Hudson’s Bay was included in the communique from last month’s Western Premiers Meeting 

The Arctic Gateway Group, an Indigenous-owned operator of the port and the HBR, announced a doubling of critical mineral exports through the port in 2025 in partnership with Hudbay Minerals Inc. Expanding agriculture and energy exports also present opportunities for the port.

Wildfires lead to temporary curtailment of oil production

Several major oil and gas companies, including Cenovus Energy, Canadian Natural Resources, and MEG Energy, were forced to evacuate non-essential workers and temporarily shut in production due to the fires.

Overall, wildfires are estimated to have reduced Canada's daily crude production by about 7% temporarily, although recent progress has been made in containing the fires and bringing production back online. A look at previous episodes is included in our Chart of the Week.

Chart of the Week:  Past wildfires and energy production impacts

This is not the first time Alberta’s oil and gas industry has faced production disruptions from wildfires during the month of May. It also occurred in 2023, when up to 300K barrels per day (b/d) were curtailed at one point, and in 2011 during the Slave Lake fires. But, by far, the largest impact was in 2016 during the Wood Buffalo fires. This resulted in a 15% drop in oil and gas output during the month of May—not fully restored until July. At one point, more than 1 million b/d were offline. While oil production bounced back, it still had a noticeable impact on annual output. The impact was an estimated 0.6% hit to Alberta’s real GDP in 2016. We estimate a more modest impact of 0.1% in 2023 with this year’s impact still to be determined.

Answer to the previous trivia question: The Edmonton Oilers joined the NHL in 1979.

Today’s trivia question: Today is national doughnut day! In what year did the first Tim Hortons open?